Media Coverage

UK shale players set to educate and organise

September 29, 2014

Source: The Petroleum Economist
Helen Robertson, London

Tough talking: panel members (from left) Corin Taylor, senior adviser at UK Onshore Oil and Gas, Catherine Howard, senior associate at Herbert Smith Freehills, Derek Brower, Petroleum Economist’s editor-at-large, Katie Klaber, from the Klaber Group, and Steve Gilbert, vice president of operations, LR Senergy

Shale-gas players must help educate regulators, local authorities and the public if they wish to ensure the nascent sector's success in the UK, with industry experts also warning that the UK's complex planning permission procedures could stall the growth of unconventionals.

Speaking at a shale gas debate in London, hosted by Petroleum Economist in association with Lloyds Register Energy, Katie Klaber, founder of the Klaber Group and a former chief executive of the US-based Marcellus Shale Coalition, told delegates that educating regulators would be crucial to the industry.

"Local government has a key role to play but it's going to take a combination of modernising regulatory rules to make sure they match reality as well as having the technical expertise from companies behind this," Klaber said. "It also has to come from educating regulators and putting best practices out there to complement regulations."

Delegates to the event, An Unconventional Future: What the UK can learn from North America's Shale Gas Revolution, were also told that the country's planning procedures need to be streamlined or the UK could lose out on developing a US-style shale gas sector.

"Part of the problem is that councils don't have development plans which are up to date and that deal with shale," Catherine Howard, a senior associate at law firm Herbert Smith Freehills, said.

To explore for oil or gas in the UK, operators need a petroleum exploration and development licence. Licences are issued by the Department of Energy and Climate Change (Decc) via bidding rounds. The next round is expected to close at the end of October.

Operators also need to obtain a number of regulatory approvals before they can explore for and produce shale gas in the UK.

Unlike some other types of key infrastructure developments, which are determined centrally by the Planning Inspectorate, planning permission is granted by local authorities.

Howard said: "It takes councils a long time to update their development plans, and even if existing plans do mention minerals, they certainly won't be talking about shale at the moment."

Council decision
She added that local councils are responsible for deciding what weight to give a number of planning issues that affect prospective shale projects. These can range from the number of heavy goods vehicles allowed to travel down country roads, to noise or other local impacts.

She said the definition of these planning considerations is 'very wide' and that in practice this means councils have "a high level of discretion in terms of making planning decision".

The UK government imposed a moratorium on hydraulic fracturing in 2011 after Cuadrilla Resources's exploration drilling in northern England caused two earth tremors. The ban was lifted in 2012, but, Howard said, the process for obtaining planning consent has become much more contentious in recent years.

"What we’re seeing since the 2011 earth tremors is a pattern of onshore oil and gas applications of all different types being much more difficult to get through the system," she said. "Applications which weren't controversial in 2009, such as the Balcombe (conventional oil) application, [are now]. When renewal was granted for the Balcombe planning permission, to flow-test oil for seven days before restoring the site, it was subject to a judicial review, which is still under way.

Celtique Energie was recently refused planning permission to drill an exploration well in the South Downs National Park. At the time, Geoff Davies, the company's chief executive, claimed that the local planning committee, the South Downs National Park Authority, had made its decision 'based on a subjective and unjustified interpretation of planning guidance'.

Davies further claimed the decision failed to take into consideration 'the importance of this project to the nation' and Celtique's environmental conservation plans.

The UK government has previously floated the idea of amending the 2008 Planning Act to allow the secretary of state for energy to decide on onshore oil and gas applications above certain thresholds. Such decisions are by law required to be made in line with national policy statements, except in limited circumstances. The government has pledged its support for shale-gas development as the UK’s energy imports rise and production from the UK Continental Shelf continues to fall.

Howard said if oil and gas applications were brought within the 2008 Planning Act regime, it would "be one way for operators to have much greater certainty and to take [shale] out of the sphere of local politics".

However, the government is unlikely to rush through legislation limiting the powers of local authorities to decide shale applications until further exploration work is carried out and it has gauged the public's level of support for shale.

For many, mapping and then tapping the UK's unconventional reserves is vital to ensuring the country's security of energy supply. A recent British Geological Survey study estimated the Bowland basin, in northwest England, could hold as much as 2,281 trillion cubic feet (cf) of shale gas. By comparison, the UK's conventional gas reserves stand at just 8.7 trillion cf, according to Cedigaz, a supplier of gas data. Figures from Decc indicate that the UK's net energy-import dependency soared to 47% last year, the highest level since 1975.

On top of this, the UK's National Grid, the country's power transmission operator, has said imports will have to supply more than 90% of the UK's gas by 2035 if the country fails to invest in and develop domestic reserves, such as shale.

Corin Taylor, a senior adviser at UK Onshore Oil and Gas Group, told attendees at the debate: "Even if you're not worried about price volatility from that (rising gas-import dependency) there's still a lot of forgone jobs and tax revenue from not producing that gas in the UK."
The UK government is trying to tempt companies into the country's shale gas sector by offering tax breaks and reforming trespass laws. A proposal to change the law relating to the use of the subsurface was consulted on by the government earlier this year.

The proposal would enable onshore oil, gas and geothermal producers to drill under privately owned land without first seeking consent of the landowner.

Going underground
Under English law as it now stands, sub-surface mineral rights are vested in the crown, but companies with licences to extract oil and gas must negotiate access with the landowners under whose property the resources are found, or face possible prosecution for trespass.
Trespass could prove particularly problematic for prospective shale-gas producers, as horizontal drilling could constitute trespass beneath land owned by multiple landowners.

Howard told delegates: "In the case of hydraulic fracturing, that could mean operators would have to negotiate with hundreds of thousands of landowners.

"Clearly they're not going to do that in practice. [UK shale] is simply not going to kick off unless something is done about that procedure."
The government is proposing to dispense with the need for individual landowner consent, instead allowing shale-gas developers access rights to resources lying more than 300 metres subsurface.

Companies would still be required to notify landowners of drilling plans and would be expected to pay a voluntary community fee of £20,000 ($33,400) per well drilled.

Klaber told delegates the Marcellus Shale had been such a success story partly because US citizens own the mineral rights beneath their properties. In contrast to the US, resources in the UK vest in the state.

"It's about making local people feel they've got a stake in this and that it means something to them. It's not going to get done in London, it has to happen in the various communities," she said.

The Marcellus has by far the highest gas production rate of any US shale play, accounting for about 40% of the country's total shale gas output.

The play's production for September 2014 is expected to total 15.63 billion cubic feet a day.

The speakers outlined the difficulties that hopeful shale gas operators face from environmentalists who oppose development. The negative connotations associated with the word 'fracking', fears over water contamination and public concerns that renewable energy projects would be put on the backburner if shale took off, were all obstacles the shale sector must grapple with, they said.

Last year, an anti-shale gas protest group organised a six-week demonstration outside Cuadrilla's site in Balcombe, southeast England. Despite the fact that Cuadrilla was hunting for conventional oil rather than gas, hundreds of supporters visited the camp and several smaller protests have also been organised across northern England.

"People are objecting to an industry that we don't yet have, [over] something that hasn't been done yet," Steve Gilbert, vice president of operations at LR Senergy, an energy services firm which is part of the Lloyds Register Group, told the debate.

He added that because some anti-shale feeling has previously been so strong that the industry should be careful to pick its battles wisely.
"It's probably better to engage in an argument which we stand some chance of winning, such as the technical one."

The expert panel concluded that while there were many legal and geological differences between development of US shale gas and the situation in the UK, educating both the public and local authorities was the only way to get the industry off the ground.

"Five years ago it was thought the Marcellus was a company or a person. Now it's a common part of our language," Klaber said. "The key to making it work was a lot of fortitude. We've fought for every inch along the way."

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About The Klaber Group

The Klaber Group provides strategic services to businesses and other institutions as they capitalize on shale development in the United States and abroad, and as they manage the impacts of public sector actions across many industries. Founder Kathryn Klaber, with her Klaber Group colleagues, brings to her clients a wealth of experience in working with businesses on energy, economic and environmental issues at the confluence of the private and public sectors.